) to 'A' from 'A+'. This rating was removed from CreditWatch where it was listed February 24, 2004. The outlook is stable.
Standard & Poor's also affirmed its 'A-1' short-term corporate credit and commercial paper ratings on the company. New York, N.Y.-headquartered Dow Jones is a provider of business news and information. The company had $153 million of debt outstanding at December 2003.
The lower rating reflects Dow Jones' March, 2004, acquisition of Alternative Investor Group for $85 million in cash, which has resulted in credit measures weaker-than-previous expectations. While the company's quarterly advertising linage growth turned positive in the 2003 third quarter, monthly and category volumes are still uneven. Standard & Poor's does not expect Dow Jones' financial profile in the intermediate term to return to levels consistent for the former long-term rating.
The ratings on Dow Jones reflect the company's position as the leading supplier of U.S. business news and its historically conservative capital structure. These factors are tempered by a pro forma financial profile that is currently not indicative of the 'A/Stable' corporate credit rating, the high volatility of revenues and cash flow resulting from the dependence on the Wall Street Journal's domestic operations, and the Journal's still challenging advertising revenue climate.
The print publishing segment, which consists primarily of the Journal, accounted for roughly 70% of revenues and EBITDA in 1999 and 2000. Other operations include electronic publishing and community newspapers. However, as a result of the advertising revenue downturn at the Journal beginning in 2001, print publishing represented about 60% of revenues and less than 30% of EBITDA in 2002 and 2003. Revenues total about $1.5 billion.
Dow Jones suffered a more substantial deterioration in its revenues and cash flow than other newspaper publishers due to the soft economic conditions and the Journal's heavy reliance on financial and technology advertising. However, to help offset this weakness, the company instituted major cost-reduction programs. Dow Jones generated negative cash flow after capital expenditures and dividends in 2002 and the first quarter of 2003. However, discretionary cash flow has been positive since then. Following the completion of a major print expansion project in 2001, capital spending is at significantly lower levels.
Adjusted for operating leases, pro forma debt to EBITDA is in the high-1x area, up from the mid-1x area at December 2003. Further adjusting for debt-like unfunded postretirement medical plan liabilities, pro forma debt to EBITDA is in the mid-2x area. Standard & Poor's expects that Dow Jones' overall financial profile will strengthen as the company reduces its debt levels and with the prospect for further cash flow gains this year as the advertising environment recovers. Dow Jones' share repurchase program has been suspended since mid-2003 when the company acquired The Record of Stockton, Calif. for $144 million in cash.
Liquidity: At December, 2003, the company had about $24 million of cash. Commercial paper is the only debt in the capital structure. Pro forma for the acquisition of Alternative Investor Group, Dow Jones would have had about $240 million of commercial paper outstanding at the end of 2003. The commercial paper program is backed up by $400 million of undrawn revolving credit agreements, consisting of a $130 million 364-day agreement maturing in June, 2004, and a $270 million agreement maturing in June, 2006.
Outlook: The outlook is stable. Ratings stability reflects the expectation that Dow Jones will focus in the intermediate term on strengthening its financial profile to levels more appropriate for the corporate credit rating.